Using Google Trends To Take Advantage Of Pullbacks

Using Google Trends To Take Advantage Of Pullbacks: Ebola Case Study

The US stock market looks very different today compared to one month ago.

In October, we saw the S&P 500 index break its multi-year trend and its 200 day moving average:

 

spx trend

In addition, market fear, as measured by the “VIX” (aka the fear gauge) hit levels that haven’t been seen since 2012:

vix trend

 

Many, including myself, became worried that the high levels of margin use would cause a much larger sell off and investors may not continue their trend of “buying the dips”.

Instead, this pullback in the market became an opportunity for nimble investors.

For investors looking to take advantage of the pullback, one key question had to be answered:

“Would investors continue to buy the dips, or would this pull back lead to a much larger decline?”

Google Trends: A Valuable Tools During Market Pullbacks

One tool that I like to use during times of extreme market volatility is Google Trends.

Google Trends allows you to view how popular various search inquiries are on a historical basis.

The advantage of this during extreme market volatility is that it allows us an opportunity to see how closely correlated the stock market is with the news cycle of various topics.

In the case of the Ebola news cycle, we were able to see a strong correlation between the S&P 500 Index vs Ebola search terms:

ebola vs stock market google trends

s&p 500 year end 2014

 

By researching the top fears of investors – or better yet – the top fears that the financial media were presenting, we can see which news trends are really worrying investors.

Once a strong correlation is established, we can watch the markets to see if a buying opportunity is present when the news cycle begins to slow.

 

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO/Portfolio Manager

Riverbend Investment Management

 

 

 

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feature image: duchesssa

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